FANFARE FOR THE EURO

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Money and armed force are central components in the construction of a European state. Blair was saying that Britain was not going to be left out of this process. Then, on 19 January, British Aerospace announced it was buying GEC's Marconi division in preference to partnership with French and German weapons producers. The cry 'Perfidious Albion' went up in continental boardrooms. Blair was said to be 'fuming'.

Steps towards consolidating the European power bloc make the Labour government's attempt to straddle its two positions - being the USA's number one partner while moving closer to the European project - more precarious. Tensions increase with the global capitalist crisis, intensified rivalry for markets and profits and the looming prospect of trade war between the USA and Europe.

Since 1 January non-cash transactions between 11 European Union (EU) member states have been conducted in euros. Euro notes and coins will be introduced in 2002 as the 11 national currencies are phased out. Britain, Denmark, Sweden and Greece are the EU countries not participating. Nevertheless, writing in the Wall Street Journal of 4 January 1999, Blair wished the new money well. Under the headline 'An opportunity, not a threat', Blair said: 'London will be at the centre of the euro even though Britain is not part of the first wave to join Europe's single currency...If the euro works and the economic benefits are clear and unambiguous, we would recommend entry.' Blair went on to praise the removal of exchange costs for member countries, exchange rate stability, price transparency, pan-European corporate mergers, financial market link ups and similar blessings.

It was left to the French Prime Minister to spell out the political reality: the euro will allow Europe 'to escape the domination of the dollar' and the USA, which ineptly seeks to be 'organiser of the international community'.

As we stated in FRFI 140 (December 1997/January 1998), the Labour government was elected because Thatcherite contempt for Germany and Europe was no longer sustainable. The British ruling class recognises that the only possibility for maintaining social stability, founded on the middle class and more affluent workers, is in alliance with Germany and Europe.

Preparing Britain to sign up to join the euro-zone, the British government has set up committees to draft a National Changeover Plan. Priorities are the timescale for joining and the rate at which the pound joins the euro. Several bigger British companies are already forcing smaller suppliers to invoice in euros.

While it is common among the British ruling class for Britain's closer involvement with Europe to be seen as indicative of Britain's relative decline, in Europe the progress of the EU is viewed as their success, their post-war reassertion. The establishment of the euro is a potential challenge to the supremacy of the dollar and the USA.

The combined population of the 11 euro-zone members is 292 million, compared with the USA's 268 million; the gross domestic product (GDP) is $6.26 trillion, compared to the USA's $8.11 trillion; and euro-zone exports are 18.8% of the world total compared to the USA's 14.1%.

Where European exports predominate, the challenge to the dollar's role as leading world reserve currency is strong. Tunisia and Egypt swiftly followed the euro's launch by converting dollar holdings into the new currency. Taiwan's central bank now keeps a third of its reserves in euros. Poland redefined its zloty weighting against other currencies with the euro benefiting at the expense of sterling. Brazil's January devaluation of the real saw a currency flight to the euro. European oil imports from the Middle East exceed those of the USA. There is a likelihood that Middle Eastern oil producers will price oil in euros rather than dollars. The US Treasury makes at least $16 billion a year from foreigners holding dollars. It is not just this money that is threatened.

The US current account (trade) deficit is expected to reach close to $300 billion this year, 4% of gross domestic product. It needs funding and has been funded for 20 years by foreigners investing in the USA and buying dollar assets. Now a deficit on investment income has appeared. The USA is borrowing to pay interest on its borrowings. Japan, which has been the biggest funder of the US current account deficit and which bought $54 billion of US securities in 1996, became a net seller on the US stock market in 1998 with a $3 billion withdrawal.

Two consequences follow: first, the US government may push up interest rates to stem the flow of liquidity out of the country, triggering the New Great Crash on Wall Street; second, there will be a drive to protectionism and trade war to reverse the growing trade deficit. The consequences for Wall Street are the same: meltdown. (See FRFI 127 October/ November 1995).

At the moment the US government threatens to impose $520 million a year sanctions on EU exports because of a dispute over European trade preferences for Caribbean bananas, but the wider crisis of trade deficits with Japan and Europe drive the dispute.

Discordant notes
The euro fanfare cannot hide discordant notes in Europe itself. Euro-zone unemployment is officially 10.8% and rising. Membership of the zone removes national governments' control over interest and exchange rates to influence their economies. Overall economic growth is forecast to be just 1.4% this year - low. Ireland's economy grew 8.5% in 1998, while Italy's managed 1.5%, yet they have the same base interest rate set by the European Central Bank in Frankfurt. By usual capitalist policies Ireland's rate would be higher and Italy's lower. Problems of uneven development, with regional patchworks of boom and slump, will be exacerbated.

Such unevenness requires transfers of funds within the European Union to counteract regional depression, but the budget is to be capped at current levels and a 1996 Growth and Stability Pact enforced, restricting governments' abilities to borrow and spend. Public spending, pensions and social security are targeted for attack; the price of a strong euro.

Europe does not yet have a cohesive capitalist class. There are disputes over budget contributions, enlargement of the EU to the east, economic policy priorities and foreign policy. These reflect different capitalist histories and interests. Germany accounts for 36% of the euro-zone GDP. It is bound to throw its weight about. Germany's £8 billion net contribution is 60% of the EU budget and 17 times Britain's contribution. Germany wants Britain's £2 billion rebate brought down and its own contribution cut. Britain's Labour government will be singled out to show their European credentials where it hurts most. National rivalry within Europe has far from ended.

When Blair says that Labour will recommend Britain joining the euro if it proves a success and is appropriate, what he means is that the City has an awful lot to lose from exclusion and the City will fight to ensure its position as the financial centre of Europe. It cannot stand outside without having its ability to subordinate potential rivals undermined. (See FRFI 141 February/March 1998).

The City has 32% of the world's currency trade, $640 billion daily; Frankfurt has 5% and Paris 4%. The City has half the world's trade in non-local shares; it ranks second only to Tokyo as a fund management centre; its Liffe derivatives market is the biggest in the world; it is the centre of the world insurance and shipbroking business. The City contributes about a quarter of the British economy's earnings. There is a lot to lose and a lot to gain, and capitalists, be they German, French or whatever, have unconscionable appetites.

The advent of the euro forces 11 stock markets to price in euros. Together they are worth twice the City Stock Exchange. They are integrating and competing for funds with the City. The euro-denominated bond market will be far bigger than the British market and worth initially 60% of the US market. Already the Liffe has seen money market business move to Frankfurt.


FORTRESS EUROPE AND THE TROJAN HORSE


'Britain is forging a new relationship with Europe...I have no doubt at all that is where the future interests of my country lie.' Thus spake Tony Blair having announced the 'historic' St Malo Declaration on 4 December with French President Chirac and Prime Minister Jospin. This was a declaration of intent to build a unified European military force. It came just weeks before the 1 January 1999 launch of the European single currency, the euro. TREVOR RAYNE reports.

The St Malo Declaration states, 'the union (EU) must have the capacity for autonomous action, backed up by credible military forces, the means to decide them, and a readiness to do so, in order to respond to international crises.' Dependence on US forces in former Yugoslavia and their role in the Gulf demonstrate the relative incapacity of the European bloc to assert its interests abroad by force.

In British Aerospace and GEC/ Marconi, Britain had Europe's two biggest arms producers. Combined EU defence expenditure is 60% of that of the USA. However, Europe has 10 main contractors for military aircraft and helicopters, the USA has 5; Europe has 4 contractors for tanks, the USA has 1; Europe has 12 contractors for missiles, the USA has 3. The costs of weapons research and production force a concentration of the European arms industry and the British firms would naturally be at the centre of it. The alternative is dependence on the USA.

The British ruling class must draw closer to the European project for economic, social and political reasons. However its multinationals, with overseas investments exceeded only by those of the USA, and the global role of the City, make it dependent on linking up with US military force to protect its global interests - witness the Gulf. For the USA, Britain can play the role of Trojan Horse, providing an entrance into and undermining attempts to build an independent European bloc: a Fortress Europe. The dance of the defence consolidation game reflects these counter-points.

While British Aerospace conducted negotiations to merge with Germany's DaimlerChrysler Aerospace (DASA) to form the core of a European Aerospace and Defence Company, which the French and others would later join, GEC/Marconi encouraged suitors from the USA, Lockheed Martin and Northrop, with some enticement to the French Thomson thrown in for good measure to boost the selling price. Lockheed has partnership agreements with 75 British companies and is a major supplier to the RAF. GEC/Marconi was the sixth biggest defence contractor to the USA, having purchased a Texas firm Tracor. The US state favours such trans-Atlantic deals.

British Aerospace and DASA between them own 58% of Europe's main airframe manufacturer Airbus and will assemble 412 of the 620 Eurofighter aircraft ordered. They looked suited to launch the new European arms endeavour. But, in the midst of £220-a-night hotels with accompanying helicopter pads and South African golfing breaks, their executives could not agree on values of shares in the proposed merged company, nor could they agree on control over it. Would it be a British-German firm or a German-British firm?

Fearing that GEC would sell Marconi to the USA or France and challenge its lucrative British government orders, British Aerospace bought the business for £6.9 billion instead. German and French executives claimed they had been stabbed in the back and the route to European consolidation blocked. Now British Aerospace is second only to Lockheed Martin for weapons sales with $16 billion a year. The nearest European rivals sell $5 billion. British Aerospace is now Britain's biggest manufacturing company with 99,500 employees.

British Aerospace's sales to the US have increased from 12% of the total to 22%. It has straddled the trans-Atlantic and European positions. British Aerospace holds 35% of Saab of Sweden and is negotiating similar deals with Spain's Casa, Alenia of Italy and Norway's Konigsberg. Whatever the French or Germans do, British Aerospace presents them with a fait accompli; it intends to dictate the future course of the European defence industry and the City will not be sidelined.

There are 'left of centre' governments in 13 of the EU states. Writing in The Independent, 17 December 1998, Ken Livingstone states, 'We need to spell out quite clearly the benefits of Britain being part of a euro-currency bloc large enough to resist the attacks of speculators which have so often in the past derailed the plans of Labour governments.' Social democracy spreads the illusion of a progressive European project, all the better to allow the giants of finance capitalism to build a powerful imperialist contender, getting ready to challenge for the world title.

FRFI 147 February / March 1999
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